Practical challenges in the German WHT market: Time to act!
Legal background
The Act for the Modernisation of the Withholding Tax Relief and the Certification of Withholding Tax (“AbzStEntModG”) introduced an electronic filing process for withholding (“WHT”) tax reclaims in Germany. Additionally, the AbzStEntModG introduced extended reporting obligations for custodians and German-based listed companies.
The legislation aims to enhance the efficiency of tax reliefs for foreign taxpayers through digitalisation and to reduce vulnerability to tax abuse and fraud.
However, the electronic filing process poses practical challenges for market participants and put a hold on reclaim filing activities by custodian banks.
Market participants should assess their options now for WHT reclaims subject to statute of limitations as of December 31, 2024 (income pay year 2020). It should also be taken into consideration that the collection of the relevant documents from the custodian, such as dividend vouchers, may take several weeks.
Status quo of the German reclaim market
Section 50c German Income Tax Act foresees that WHT reclaims are submitted in accordance with the authoritative prescribed data set and designated interface as of January 1, 2023. Prior to December 31, 2022, the process of WHT reclaims foresaw a paper-based submission. As a relief for taxpayers, the Federal Tax Authorities generally accepted the paper-based submission of WHT reclaims until June 30, 2023 and until September 30, 2023 concerning dividends paid in 2019.
From July 1, 2023 (respectively October 1, 2023) onwards, the submission of WHT reclaims must be carried out electronically via the Bundeszentralamt für Steuern Online Portal (“BOP”).
BOP is a comprehensive online platform that serves as a central hub for various administrative services in Germany. In turn, BOP was not specifically designed to support the electronic submission of WHT reclaims and provides for technical limitations (e.g., no bulk upload functionality for WHT reclaims). Additionally, questions arise regarding personal liability for the person filing the WHT reclaim.
As a result of the aforementioned uncertainty around personal liability and technical limitations, the WHT reclaim activities, mainly rendered by custodian banks, were brought to a stop after the extended deadline for paper-based WHT reclaim submissions ended.
The German Federal Tax Authorities intend to introduce new online forms and functionalities for BOP within the first quarter of 2025. It is expected that the updated BOP should reduce the technical restrictions of the portal.
Mass filing solution to go live in June 2024
The German Federal Tax Authorities announced the introduction of a mass fling solution beginning of June 2024. The mass filing solution will allow the submission of an unlimited amount of WHT reclaims up to a total file size of 1 GB within one submission via an Application Programming Interface (“API”).
The development of the technical basis to submit WHT reclaims via the API poses major challenges for market participants. The timeline for implementing a solution for WHT reclaims becoming statute barred at the end of 2024 is tight and also requires an adjustment of the data collection process due to extended data requirements.
Reporting obligations under MiKaDiv from January 2025
Custodians face another challenge under the AbzStEntModG: the reporting obligation under MiKaDiv. MiKaDiv stands for "notification procedure for capital gains tax on dividends and depository receipts" and applies from January 1, 2025. Custodians will also face increased liability and obligations for adjustments for erroneous data.
Furthermore, German-based listed companies are obliged to report the owners of their shares to the BZSt.
The intention of MiKaDiv is to prevent tax abuse in connection with dividend payments and the WHT reimbursement on shares and depositary receipts.
MiKaDiv requires custodians to provide extensive information on relevant payments. This includes information to be collected through the custodian chain as well as information on securities lending and repurchase agreements.
Custodians are obliged to report the data to the German Federal Tax Authorities via the mass data interface.
PwC Solution for WHT filings via BOP
Given the uncertainties around the filing process, taxpayers should consider exploring their options to file WHT reclaims with a professional services provider before the WHT reclaims for the income pay year 2020 reach the statute of limitations by December 31, 2024.
Our dedicated WHT tax team at PwC Asset & Wealth Management Tax is pleased to offer a service for WHT reclaim filings via BOP. Our solution supports WHT reclaims of all scales, from filing single applications to hundreds of applications.
Please do not hesitate to contact us in case you would like to discuss your options to file your WHT reclaims now.
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